Chains on the City: Can Global Value Chains Unleash the Demand

for Secondary Cities?

Arti Grover Goswami and Somik V. Lall

Secondary Towns, Jobs and Poverty Reduction: Refocusing the Urbanization Agenda

May 18-19 , 2016

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Motivation (1)• Stability and persistence in the size distribution

of cities

Motivation (2)• City size distribution is “still”, but the “fast”

churning of industries can trigger a “slow” movement of cities

Motivation (3)

• Global value chains (GVCs) fundamentally alter the industrial composition of cities / regions

• Singapore

• Malaysia (Johar Baru)

• Indonesia (Bintan Batam)

Question

• Can participation in GVCs activate secondary cities?

• Transmission mechanism for Participation in GVCs to the size distribution of cities

• Quantity Effect

• Quality Effect (knowledge)

Estimation Strategy

• Stage 1:

𝑅𝑖,𝑐,𝑡 is the rank of city i in country c at time t and 𝑃𝑖,𝑐,𝑡 is the population of the given city i in country c at time t .𝛾𝑐,𝑡 is the Zipf’scoefficient

𝑙𝑛𝑅𝑖,𝑐,𝑡 = 𝐴𝑐,𝑡 − 𝛾𝑐,𝑡 𝑙𝑛𝑃𝑖,𝑐,𝑡 + 𝜀𝑖,𝑐,𝑡

Estimation Strategy

• Stage 2:

where 𝜑𝑐,𝑡 is a vector of time and/or country specific fixed effect, as

appropriate. 𝑋𝑐,𝑡 is a vector of country specific characteristics at time t , 𝛽 measures the effect of changes in these variables on city size distribution.

𝛾𝑐,𝑡 = 𝜑𝑐,𝑡 + 𝛽 𝑙𝑛𝑋𝑐,𝑡 + 𝑒𝑐,𝑡

Data

• Demographic Data: Thomas Brinkhoff (2004): http://www.citypopulation.de/.

• GVCs data: OECD TiVA

Indicators:

• DVA in exports of intermediate products, % gross exports

• Re-imported domestic value added, % gross exports

• DVA embodied in foreign exports, % gross exports

Country coverage TiVA database

Descriptive Results

Descriptive Results

Descriptive Results

Descriptive Results

Descriptive Results

Descriptive Results

Base Results

Base Results

Results: By Sector

Conclusions

• GVCs are changing the process of industrialization

• Policies aiming to integrate into GVCs can offer hope for activating secondary cities

• However, data on urban agglomerations suggest that participation in GVCs is not effective in increasing demand for secondary cities. • A higher knowledge content of participation in GVCs is associated with

higher clustering of economic activity in urban agglomerations.

• Issues to sort out – measuring cities and urban agglomerations